CEE Macro Weekly: Ambiguous inflation in the region

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TOP MACRO THEME(S):

• Inflation below the target right from the start of 2026 (p.3) – January inflation prints showed a continuation of disinflation across most of the CEE region, although the details suggest that the implications for monetary policy are not clear-cut.

WHAT ELSE CAUGHT OUR EYE:

• CZE: Fitch Ratings reaffirmed Czechia’s rating at AA- with a stable outlook. Among the key rating drivers, the agency mentioned the reversal of fiscal consolidation by the new government, noting that the deficit could widen to 2.6% of GDP in 2026 and 2.7% of GDP in 2027, from an estimated 2.1% of GDP in 2025. Debt dynamics are less favourable than at the August review, when public debt-to-GDP was projected to stabilise at around 45%; the agency now expects it to increase to 47% of GDP in 2027. At the same time, Fitch highlighted the resilience of the Czech economy, although contrary to the CNB’s forecast and our expectations, it assumes that growth in 2026 will be close to the 2025 pace. Inflation is expected to average 1.5% and the agency anticipates one 25bp rate cut in 2026. The risks of a potential downgrade or upgrade appear balanced. The former could occur in the event of a significant increase in general government debt-to-GDP over the medium term or a deterioration in growth prospects. An upgrade could take place in the case of robust growth supporting a substantial improvement in per capita income. The stable outlook reflects agency’s expectation that fiscal easing under new government will be contained.
• CZE: Fiscal Council officially declared that 2026 budget bill is not compliant with fiscal responsibility rules because the structural deficit at 2.2% of GDP exceeds the legal limit of 1.75% of GDP. The Council rejected the Ministry of Finance’s argument that the new budget merely constitutes a revision of the budget prepared by the previous government and therefore the fiscal responsibility act does not apply. The Council emphasized that such an interpretation would open the way for any subsequent government to have the budget bill returned by the lower house and then revise it without regard to fiscal rules. At the same time, further actions have not been determined.
• HUN: The TISZA party, which is leading in opinion polls ahead of the April elections, has announced its economic programme, which includes reducing the budget deficit below 3% of GDP by 2030. However, the programme does not envisage that many changes enhancing the revenue side, with the exception of e.g. a 1% wealth tax. Fiscal consolidation is to be achieved primarily through tackling corruption and restoring EU funds. One of the key elements of the programme is bringing Hungary into the euro area, with the Maastricht criteria to be met by 2030.

THE WEEK AHEAD:

• At the beginning of the week, attention will focus on Romania. On Monday, January inflation data will be released – we expect inflation to remain above 9% y/y. The following day will bring the interest rate decision, which in the context of such high inflation can only go one way – rates will remain unchanged. In the second part of the week, a range of data on economic activity in Poland for January will be released. Among the most interesting are wages in the enterprise sector, whose growth we believe slowed to 6.8% y/y from 8.6% y/y in December. This would be a reassuring signal for the MPC after strong wage data from the national economy in 4q25.